In the Matter of the Complaint Against ) March 11, 1996 ) THOMAS & LORDS, INC. and ) STEVEN G. LEVINE ) 7027 West Broward Blvd. ) Suite 2110 ) ) at ) ) Plantation, FL 33317-2208 ) P.S. Docket No. FR 95-277 APPEARANCE FOR COMPLAINANT: Rodney Gould, Esq. Consumer Protection Law United States Postal Service 475 L'Enfant Plaza, SW Washington, DC 20260-1147 Alan B. Ostroff, Esq. Inspector Attorney 225 N. Humphreys Blvd. Memphis, TN 38161-0013 APPEARANCE FOR RESPONDENTS: David A. Coven, Esq. Coven & Lane, P.A. 5310 N.W. 33rd Ave., #100 Fort Lauderdale, FL 33309-6319
INITIAL DECISION
This proceeding was initiated on August 17, 1995, when the General Counsel for the United States Postal Service filed a Complaint alleging that Steven G. Levine and Thomas & Lords, Inc. (Respondents) violated 39 U.S.C. §3005 by engaging in a scheme or device for obtaining money or property through the mail by means of false representations.(1) Specifically, paragraph 6 of the Complaint alleges that Respondents, by sending direct mail circulars to individuals, make the following representations, and that these representations are false and material:
a. Respondents will supply the names of 150 Private Foundations that provide interest-free cash grants to individuals;
b. Interest-free cash grants are available through Respondents for amounts from $500 up to $50,000, with no collateral, no co-signers, no security deposit, and no credit check;
c. Anyone can get an interest-free cash grant, as long as they have a genuine reason for needing the money;
d. The cash grants obtained by recipients are not required to be paid back to the private foundation issuing the grant;
e. Respondents will apply to the sources of private grants and do all the paperwork for their customers for a small additional fee.
In a timely filed Answer, Respondents denied making any false representations. A hearing was held on November 6, 1995 in Washington, D. C. Both parties appeared and were represented by counsel. Complainant, the Postal Service, called seven witnesses. These included the postal inspector who investigated this case, two consumer witnesses, representatives of three private foundations, and an employee of the Foundation Center - a non-profit organization that provides information to the public about foundations. Respondent Steven Levine testified in his own behalf. At the hearing, based on testimony from the consumer witnesses and Mr. Levine, Complainant was permitted to amend the Complaint to add one more allegation of false representation:
f. If their request for a grant is not approved, consumers will receive a complete refund of all money paid to Respondents, including the second option remittance of up to $59.95.(2)
Both parties filed post-hearing briefs, in the form of proposed findings of fact and conclusions of law. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. The following findings of fact and conclusions of law are based on the entire record, including all testimony and documentary evidence introduced at the hearing, and observation of the witnesses and their demeanor.
FINDINGS OF FACT
1. Respondent Steven G. Levine is the President and owner of Thomas & Lords, Inc., located in Plantation, Florida. He employs three other people. (Tr. 233.)(3)
2. Respondents solicit business through direct mail flyers (Cx-2), and by advertisements in local newspapers. People who respond to a newspaper advertisement then receive the flyer (Cx-2) in the mail (Tr. 69). Respondents solicit the remittance of money through the mail to 7027 West Broward Blvd., Suite 2110, Plantation, FL 33317 (Cx-1; Cx-2).
3. Respondents' solicitations offer to provide information and assistance to individuals in obtaining grants of money from private philanthropic foundations.
4. The solicitation states "Our Application Fee is $19.95 for Personal & Business Grants." For this fee Respondent "will process your service application within 10 to 12 days. We Will Match Your Financial Needs & Requirements With The Most Suitable Private Foundations, In Our Program."
5. The solicitation also offers a "Second Option." For $49.95 Respondents will "apply to the sources for you, on your behalf, in other words, we will do all your paperwork for you." Both options also promise to do "rushed processing and handling" for an additional $10.00.
The Representations a. Respondents will supply the names of 150 Private Foundations that provide interest-free cash grants to individuals.
6. The solicitation does not make this precise statement, but the representation is made by the misleading language of the solicitation, and by the fulfillment sent to people who mail in $19.95. The top line of the solicitation (Cx-2) says, "We Have Over 150 Private Foundations In Our Program ALL Over The United States." It then says, "We are a FINANCIAL FINDER & MATCHING SERVICE." It also makes the following statements:
"Foundations give away billions of dollars every year to individuals."
"The Money May Be Used For Any Worthwhile Purpose;
Business, Maybe Debt Consolidation, Medical, Personal,
Real Estate, Education, Etc.
"As a Financial Finder & Matching Service, we'll review your service application form and determine which foundations may be most likely to provide you with the money that you need. Keep in mind that we have only reputable foundations in our program."
The fulfillment (Cx-3) is a 9-page document containing general information about private foundations, where to write for more information, and some tips on how to apply. It also includes a list of 133 foundations, under the heading "Grants for Business, Personal Loans and Real Estate, etc.. . .," and a list of 49 foundations, noted as giving grants for welfare assistance, nursing and medical assistance for the sick and destitute, and for educational purposes.
Although the Complaint does not fully spell this out in its allegation, this representation also implies that the list provided to an applicant is a list of foundations that are likely to award a grant to that particular applicant. This implication, and representation, is made by the many references to Respondents' "Matching Service," the claim that "most of our clients are approved for their grants," and the claim that it is much easier to get a cash grant by mail from a foundation than to obtain a small loan from a bank. That the Complaint did not articulate this misrepresentation as artfully as it might have is not fatal. Pleadings may be conformed to the proof without need of formal amendment. Beauty Originals, P.S. Docket No. 3/24 at 18-19 (I.D. 1975).
7. As so construed, this representation is false. Many of the foundations listed in Cx-3 make grants only under very limited restrictions, and "clients" of Thomas & Lords would have no chance at all of receiving a grant simply by mailing in an application. This was demonstrated by the testimony of witnesses representing three foundations listed by Respondents. Mr. Passano testified that the Passano Foundation only makes awards for medical research, and that this is done through nominations solicited from medical and scientific organizations, not from individual applications (Tr. 32, 36-7, 43). Mr. Edgerton testified that the Community Foundation of Gaston County, North Carolina supports charitable groups in Gaston County, but makes no grants to individuals for the purposes stated in Respondents' literature (Tr. 60-62). The only individual grants it gives are to children in North Carolina with special medical needs, and this is done through requests from medical institutions or practitioners (Tr. 61, 66-7). Mr. Griffing testified that the Buchly Charity Fund of Federal Lodge No. 1 provides money only to widows and orphans of members of that particular Masonic Lodge (Tr. 106).
8. The falsity of this representation is also demonstrated by Respondents' Exhibit 1, a package of letters offered as part of Mr. Levine's testimony on his refund policy. These letters, from various foundations to individuals who had requested grants, show that many more of the foundations on Respondents' lists do not make the type of grants implied by Respondents' literature. Respondent Levine, on the other hand, could not name anyone who had actually received a grant as a result of buying his service (Tr. 143).
9. This representation is material because people are more likely to remit money in response to a solicitation that leads them to believe they will receive a list of foundations that are likely to approve their grant request.
b. Interest-free cash grants are available through Respondents for amounts from $500 up to $50,000, with no collateral, no co-signers, no security deposit, and no credit check.
10. The operative words here are "through Respondents." Much of the language in the solicitation (Cx-2) implies that Respondents have some relationship with the private foundations, and that Respondents will be able to give valuable help to people in obtaining cash grants. This is strongly implied by the repeated references to the "Foundations In Our Program," and the repeated claim that "We are a FINANCIAL FINDER & MATCHING SERVICE." It is also implied by the several statements as to how easy it is to get a grant, that "most of our clients are approved for their grants," and that "we know where the money is and which private foundations may be most likely to approve your grant."
11. This representation is made, and it is false. Respondents have no relationship with any private foundation. Mr. Levine testified to this (Tr. 130, 237). All Respondents do is copy the names and addresses of foundations from other publications and put them on a list to send to customers. Respondents have very little information about the restrictions or qualifications applicable to the various foundations, and make no effort to learn. They send the same list to all applicants (Tr. 235-36). Implying to customers that they actually perform a "matching" service designed to direct an individual applicant to foundations likely to approve that applicant's request is part of this false representation. The testimony of the consumer witness, Mrs. Hopkins, also supports a finding that this part of the representation is false. Under the "Second Option," Respondents apparently mailed Mrs. Hopkins' grant request to three foundations. Mrs. Hopkins thereafter received three letters of denial, one stating that the foundation was no longer in business, and two stating that Thomas & Lords had no authority to put their foundation on any list (Tr. 82-84).
12. This representation is material because people would be more likely to remit money in response to a solicitation that leads them to believe that Respondents have significant control over the application process, and influence in getting grants approved.
c. Anyone can get an interest-free cash grant as long as they have a genuine reason for needing the money.
13. The full sentence from the solicitation (Cx-2) is, "Anyone Can Get An Interest-Free Cash Grant, as long as they have a genuine reason for needing the money, & as long as the foundation agrees to their request." Respondents argue that when the last phrase is included, there is no misrepresentation. The addition of this phrase does make that sentence literally true, but it does not prevent the solicitation, as a whole, from conveying the alleged false representation.
14. The solicitation contains numerous statements suggesting that it is very easy to get a cash grant, for any purpose:
"The Money May Be Used For Any Worthwhile Purpose; . . ."
"You'll be surprised to see how easy it is to get a Cash-Grant, by mail."
"Getting a Grant by mail is probably a lot easier than you think."
"there are literally hundreds of private foundations who are anxious to donate money by mail, . . ..
"the fact is that most of our clients are approved for their grants."
"Many foundations are not concerned with what you wish to use the money for as long as it is something legal, . . .." "No matter how much you want to obtain, no matter what you want to use the money for - we feel confident that we can help you get it!, with the service we are offering you."
15. Despite the inclusion of one phrase that says it is not possible to guarantee that an applicant will receive a grant, the clear message conveyed by all these statements, and others, is that it is very easy to get cash grants, that foundations are not concerned with what their grant money is used for, and that Respondents are very successful in obtaining approvals for their "clients." Mr. Levine defended his claim that "most of our clients are approved for their grants," by stating that he made over 20,000 sales in 1994 and only about 600 people asked for refunds (Tr. 125-27). Therefore, he concluded that the remainder must have received grants. This is absurd.
16. This representation is false. The testimony of the three foundation representatives, discussed in paragraph 7, demonstrated that many foundations, which Respondents claim to be part of their "program," make grants only for very limited purposes, and not in response to letters or applications from individuals. The testimony of Patricia Pasqual, who testified as an expert on private foundations (Tr. 176), showed that grants to individuals are very difficult to obtain, partly because the Internal Revenue Service has strict rules to insure that individual grants are used for charitable purposes (Tr. 182-83; Cx-14). Because of these rules, foundations that do make grants to individuals have to be concerned with what the money is to be used for, and Respondents' implication that foundations are anxious to give away money "with no questions asked" is false.
17. This representation is material because people would be more likely to respond to the solicitation if they believe they are likely to get a grant merely by showing that they intend to use the money for some lawful purpose.
d. The cash grants obtained by recipients are not required to be paid back to the private foundation issuing the grant.
18. This representation is made many times in the solicitation. Complainant argues that it is false because no one is likely to actually receive a grant through Respondents' solicitation. That premise is undoubtedly correct, but this is a falsity covered by the earlier allegations. A grant, by definition, does not have to be repaid, and this representation is not false.
e. Respondents will apply to the sources of private grants and do all the paperwork for their customers for a small additional fee.
19. This is the "Second Option," referred to in paragraph 5. It is found on the reverse side of the solicitation under the heading, Service Application Form. It says: "If you would like us to apply to the sources for you, on your behalf, in other words, we will do all your paperwork for you - Please send: $49.95." To just receive the list of foundations, and general information (Cx-3), the fee is only $19.95.
20. The obvious message here is that customers, for an extra $30.00, are buying Respondents' expertise in writing and preparing the actual application to be sent to the appropriate foundations, based on information provided by the customer. This is the plain meaning of the words in the solicitation, and was the expectation of the two consumer witnesses, Mr. Buttles and Mrs. Hopkins, who paid for the "Second Option" (Tr. 48, 55, 57-58; 71-72, 77).
21. In fact, the customers get almost nothing of value for the extra $30.00. Mrs. Hopkins received two pages of instruction on how to write a proposal to a foundation (Cx-11), and was told on the telephone by one of Respondents' employees that she would have to prepare the write-up herself (Tr. 77). Mrs. Hopkins and her daughter wrote the application themselves (Cx-10) and sent it to Respondents, who then mailed it to some foundations. When the application was returned to Mrs. Hopkins from one of these foundations with a denial letter (see paragraph 11, above), it was exactly as she and her daughter had written it (Tr. 85).
22. Respondents' position is that they deliver all that is promised, and that Complainant reads too much into this provision of the solicitation. Mr. Levine testified that "do[ing] all your paperwork" means that they read what customers submit and make corrections, or sometimes delete material if there is too much. He also testified that the cost of mailing is part of the fee for the "Second Option" (Tr. 132-35). Respondents' argument is not persuasive. The alleged representation is made, and it is false.
23. This representation is material because people are more likely to remit the extra $30.00 if they believe Respondents will take the pertinent information, prepare the application in a professional manner, and send it to foundations most likely to give a favorable response.
f. If their request for a grant is not approved, consumers will receive a complete refund of all money paid to Respondents, including the second option remittance of up to $59.95.
24. The solicitation (Cx-2) makes the following statements, in large bold type:
"WE GUARANTEE THAT UNLESS WE HELP YOU WITH OUR SERVICE, TO GET THE MONEY THAT YOU NEED- there will be no charge!"
"100% FULL MONEY BACK GUARANTEE, AT ANY TIME."
"Remember-unless your grant is approved, your application fee will be refunded in full, promptly."
None of these statements makes any reference to whether a customer chooses the basic application, for $19.95, or the "Second Option," for $49.95. Further down on the solicitation, where the fees for both options are listed, the figure $19.95 is preceded by the words, "Guaranteed Fee."
25. The two consumer witnesses, Mr. Buttles and Mrs. Hopkins, both paid for the "Second Option." Both asked for a refund, believing they were entitled to the full amount which they had paid (Tr. 47, 50, 91).
26. Respondents' position is that the refund guarantee applies only to the first option, but that they also refund $19.95 to dissatisfied customers who have used the second option. Second Option customers do not get the full $49.95 refunded (Tr. 206, 209, 228-30).
27. Respondents' position is untenable. The statements quoted above make a clear representation that all money paid by a customer will be refunded if the customer's request for a grant is not approved. Mr. Levine's testimony, in addition to that of the consumer witnesses, establishes that the representation is false.
28. This representation is material because potential customers are more likely to respond, and to choose the "Second Option," if they believe all money will be refunded should they be unsuccessful in obtaining a grant.
CONCLUSIONS OF LAW
1. Permission to amend the Complaint at the close of Complainant's case, to add the final false representation allegation, was proper, under 39 C.F.R. §952.12(b). The language in issue was contained in Respondents' solicitation, and there has been no showing of prejudice to Respondents by amending the Complaint
during the hearing. Iso-Tensor Plan, et al., P.S. Docket No. 3/30 at 23 (P.S.D.
May 23, 1975).
2. Respondents' solicitations must be considered as a whole and their meaning determnined in light of the probable impact on the mind of the ordinary recipients to whom they are directed. Donaldson v. Read Magazine, 333 U.S. 178 (1948); Peak Laboratories v. U.S. Postal Service, 556 F.2d 1387 (5th Cir. 1977); Allen Glazer, P.S. Docket No. 40/59 (P.S.D. January 27, 1994); Charles Smith, P.S. Docket No. 37/180 at 14 (P.S.D. January 31, 1994); Building Trades Association, P.S. Docket No. 37/88 at 6 (P.S.D. August 2, 1993).
3. The statute (39 U.S.C. §3005) is intended to protect the gullible, less critical reader, as well as the sophisticated and the wary. Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986). Representations may be false, within the meaning of §3005, even if many of the statements in a solicitation are literally true. Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746, 750-51 (S.D.N.Y. 1959); Joseph N. Wilkinson, P.S. Docket No. 38/183 (I.D. June 2, 1992). "This section forbids representations that are false or artfully designed to mislead." DynaQuest Corp. v. U.S. Postal Service, 12 F.3d 1144, 1146 (D.C. Cir. 1994). It is the net impression likely to be made by the solicitation that determines whether false representations are made. Donaldson, supra; G.J. Howard Co. v. Cassidy, 162 F. Supp. 568, 572 (E.D.N.Y. 1958); Vibra Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958); Charles Smith, supra at 15.
4. The solicitations themselves are the best evidence as to what representations are made, and the Administrative Law Judge is qualified to make that determination. Directory Publishing Services, Inc. v. Runyon, 851 F. Supp. 484, 488 (D.D.C. 1994); Erica Lynn Kortje, P.S. Docket No. 40/176 at 3 (P.S.D. September 27, 1995); Directory Publishing Services, P.S. Docket No. 38/122 at 6 (P.S.D. February 28, 1994); Allen Glazer, supra at 4. The use of lay or expert testimony is not required, DynaQuest, supra at 1149; Scott P. Cullinane, P.S. Docket No. 39/32 at 7 (P.S.D. November 7, 1994), but testimony from consumer witnesses as to the impression a solicitation made upon them may properly be considered, and it was in this case. Joseph N. Wilkinson, supra at 13.
5. Solicitations that are ambiguous or capable of more than one meaning are misleading if one of those meanings is false. Rhodes Pharmacal Co. Inc. v. FTC, 208 F.2d 382, 387 (7th Cir. 1953); Scott P. Cullinane, supra at 13; Directory Publishing Services, supra at 11. It is not difficult to select words that will not deceive. United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924).
6. An offer to pay refunds to dissatisfied customers does not dispel the effect of false advertisements. Farley v. Heininger, 105 F.2d 79, 84 (D.C. Cir. 1939); Jackie Sibold, P.S. Docket No. 39/115 (I.D. December 14, 1992).
7. A representation is material when it is calculated to cause the reader to do what the representor wants the reader to do, or causes the reader to do other than he or she would have done had the truth been told. Chaachou v. American Central Insurance Co., 241 F.2d 889, 893 (5th Cir. 1957); Charles Smith, supra at 30; Directory Publishing Services, supra at 16.
8. Applying the foregoing standards, I find that Respondents' solicitations make the representations alleged in paragraph 6(a)-(e) of the Complaint, and make the additional representation (f) added at the hearing in amendment to the Complaint. The language contained in the solicitation, when read in context, which directly or impliedly makes these representations is set forth in the findings of fact.
9. As set forth in the findings of fact, these representations are materially false, with the exception of the representation set forth in subparagraph (d).
10. Complainant has established its case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978). Respondents are engaged in the conduct of a scheme for obtaining remittance of money through the mail by means of false representations, in violation of 39 U.S.C. §3005.
11. The attached False Representation Order and Cease and Desist Order should be issued.
Bruce R. Houston Acting Chief Administrative Law Judge
(a) Upon evidence satisfactory to the Postal Service that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations, . . . the Postal
Service may issue an [appropriate] order . . ..
2. When Complainant's Motion to Amend was granted, Respondents were given leave to make further argument against the amendment in their post-hearing brief. They have done so, and this will be addressed, infra.
3. References to the hearing transcript are "Tr." Complainant's exhibits are "Cx" and Respondents' exhibits are "Rx."